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Infosys gains 4% on Murthy's return, outperforms market

Infosys shares closed off the day's high after rising as much as 9 per cent on hopes that the return of co-founder Narayana Murthy would revive the company's flagging fortunes.
 
The stock gained 4.4 per cent to end at Rs 2,513.95 on Monday after hitting an intraday high of Rs 2,624.9 at the Bombay Stock Exchange.  (Track stock)

While most brokerages said Mr Murthy's return was a positive for the stock, some analysts NDTV spoke to say the stock is unlikely to outperform in the absence of a quick turnaround strategy. Infosys had disappointed the Street with its fourth quarter earnings in April. It's sales outlook for 2013-14 fiscal year was way below the industry average, sending its shares down by over 20 per cent in a single session. Many investors were caught unawares amid the rapid slide.

Bhavin Shah, chief executive at Equirus Securities told NDTV that a re-rating of Infosys based on Mr Murthy's return would be premature.

"If the Street does re-rate the stock purely on this, I would consider this as an opportunity to book profits. The details of how Infosys reboots itself and any sings of it through numbers is important for re-rating to happen," Mr Shah added.

Anil Manghnani, director of Modern Shares & Stock Brokers told NDTV the surge in Infosys shares presented a good opportunity to sell the stock.

"Yes, Mr Murthy has come back, but the volumes when Infosys fell post the earnings announcement were quite significant and you will not clock those kind of volumes today even on the way up," Mr Manghnani said.

Despite some correction, Infosys remained at the top of the 50-share Nifty benchmark. It also outperformed the broader Sensex and Nifty, which closed with deep cuts.

On Saturday, Infosys reappointed Mr Murthy as executive chairman of the firm, two years after he retired in August 2011, having turned 65. (Read: Why Narayana Murthy is back to lead Infosys)

Morgan Stanley said the return of Mr Murthy is a driver for Infosys's stock price in near term. Two other investment banks said Mr Murthy's return augurs well for the stock. Bank of America Merrill Lynch upgraded Infosys to "buy," raising its target price to Rs 2,850 "on surprise return of Narayana Murthy."

CLSA, which has a target of Rs 2,605 on Infosys shares, said the stock could move back to potential longer-term portfolio holding post Mr Murthy's return.

Maintaining its "buy" on Infosys, global investment bank CLSA said Mr Murthy's return should lift the morale of junior employees. Investors will now be willing to give Infosys a longer rope, CLSA said, adding Mr Murthy is expected to be the key driver of Infosys strategy.

Morgan Stanley retained its "overweight" on Infosys saying Mr. Murthy's leadership is likely to improve execution at Infosys. However, it cautioned that execution may take 6-9 months to be reflected in reported financials.

Morgan Stanley has a target of Rs 2,890 on Infosys.